The Financial Stability Institute (FSI) of BIS published a paper that reviews institutional implementation of the principles set out in the FSB Key Attributes of Effective Resolution Regimes in 16 jurisdictions. The analysis concludes that conflicts of interest between the resolution and supervisory functions can arise irrespective of whether they are institutionally co-located or separate. A key factor in all types of arrangements is balancing operational independence for the resolution function with structures that allow it to benefit from synergies with the supervisory function.
The review shows the variation that exists in the institutional arrangements for bank resolution. While the adoption of the Key Attributes has given authorities an opportunity to review and possibly adjust their bank resolution arrangements, the principles-based nature of these standards regarding the resolution authority leaves scope for jurisdictions to integrate the resolution function within their existing institutional architecture. One of the principal considerations that emerged from discussions with authorities is how to achieve appropriate operational independence for the resolution function while enabling it to benefit from the synergies with the supervisory function. While the potential for conflicts of interest between supervision and resolution is widely recognized, there is a growing perception of the benefits of institutional arrangements that support close cooperation between the two functions. This negotiation between the two principles—operational independence and conflict management, on the one hand, and exploiting synergies on the other—is still ongoing in some authorities as new arrangements evolve and mature.
The review shows that conflicts of interest between resolution and supervisory functions could arise independently of the location of the resolution function. The co-location of the supervisory and resolution functions facilitates coordination and the resolution of conflicts through internal governance arrangements. To date, the bank resolution function in its current form is relatively new, and untested, in many jurisdictions. Therefore, effective practices in this area may still be a work in progress. Resolution authorities have not encountered significant obstacles in resolution planning and, where the arrangements were in place in earlier crises, in the conduct of bank resolution. Complex arrangements, such as hybrid models primarily resulting from historical experience, require greater coordination efforts. Resolution authorities also consider their staffing levels and legal protection as broadly adequate to exercise their functions, with the possibility of scaling-up resources in times of increased pressure.
Keywords: International, Banking, Resolution Planning, Resolution Framework, Key Attributes, Resolution Regime, Reporting, FSI, BIS
Previous ArticleEIOPA Launches Stress Test for Insurance Sector in EU
The Office of the Superintendent of Financial Institutions (OSFI) published an update on the discussion paper that intended to engage federally regulated financial institutions and other interested stakeholders in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns.
The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU).
The European Central Bank (ECB) published its opinion on a proposal for a regulation on European green bonds, following a request from the European Parliament.
The Advisory Scientific Committee (ASC) of the European Systemic Risk Board (ESRB) published a report that explores the expected impact of digitalization on provision of financial and banking services, and proposes policy measures to address the risks stemming from digitalization.
The Hong Kong Monetary Authority (HKMA) is consulting on the draft Financial Institutions (Resolution) Ordinance (Cap. 628), or FIRO, Code of Practice chapter on liquidity and funding in resolution, until March 14, 2022.
The Swedish Financial Supervisory Authority (FI) announced that the capital adequacy reporting as at December 31, 2021 must be done by February 11, 2022.
The European Banking Authority (EBA) announced that the guidelines on the reporting and disclosure of exposures subject to measures COVID-relief measures shall continue to apply until further notice.
The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.
The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.
The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).